Is this a pre 87? There could be insulation issues with the wire if it is, very common problem with that and the red wire going to the alt.

Ignore the light being on when you turn on the key before start, that means nothing but that the bulb works. That is a bulb test that uses the red wire on the Alt (small one) as a ground to check all the bulbs. As you start the car the black wire is shorted to ground via the oil pressure sensor. When the oil pressure goes above something like 7.5 psi the switch is supposed to open up and the light go out. So you would expect this to be a short based on all that right?

However if it did have a short, it should stay on when you remove the connector and that is not what you are describing. For this to happen you must be shorting something to chassis as you plug in the connector. Pull the plug off the oil pressure sending unit and be sure the contact inside that connector is not able to touch the body of the oil pressure sending unit. Also follow the wire down where it goes between the alt and the engine block. There has to be a short right in there someplace if every time you pull the connector off the bulb goes out when you start the car.

If it is the wire shorting out the quick fix is to just cut the black wire an while you are at it the red wire off the passengers side of the big gray connector, splice in new wires of the same gauge and run it down the passengers side firewall. To make to look nice you run it where the other harness going to the lights and washer motor goes, and across to the sending unit and the Alt. Chop off the old oil pressure connector and reuse it if possible. You will have to chop one off at a PUP if it is a mess, Volvo does not sell that connector unless you buy the entire engine harness.

Good Luck,

Paul